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Mortgage or buy outright?(17 Posts)
OH and I are looking into buying our first home. We are starting to wonder if it would not be better to save hard for the next 5 or 6 years in order to buy outright, than to get a mortgage which would mean we pay double the value of the property over 25 years. All the "lost" rent money over the next few years would be much less than what we'd pay a bank.
Is this a sensible idea or is there a benefit to getting a mortgage that we are missing? (Other than the fact that we could buy now). If so, why do more people not do this?
People don't do that because they can't afford to.
Are you living rent free?
No, not rent free. But it's a small enough percentage of our income to be able to save. And about half of what a mortgage would be on a similar house with the deposit we currently have.
In the next 5 or 6 years house prices might have rocketed again...
People don't save up for 5 or 6 years to buy a house because not many people can amass savings to the value of a house in that period of time!
The 'benefit to getting a mortage' that you are missing, is that it is a loan to buy a home, for people who would never be able to pay cash for a house! Especially if their money is all going on rent - then the money they save on rent goes on the mortgage payments.
I would buy a house now and just get a short term mortgage, or one that you are able to overpay on, so it will be paid off quicker and you will be on the property ladder should house prices start to rise again.
Sorry, that wasn't very clear. If we were to buy right now, our mortgage repayments would be twice as much as our rent.
As flibbertyjibbet says, the other way of doing it is to get a mortgage and overpay. Most will let you do this to a lesser or greater degree.
There are online calculators that will let you see how much interest you'll save doing this. If you can throw an extra couple of hundred or so at your mortgage every month it'll make a big difference.
Would this be half as much rent on a similar property? (In which case it doesn't seem like a good time to buy, seeing as interest rates are likely to rise soonish)
Or would you be buying a larger property than you'd rent, in which case the advantage is that you get to live and enjoy the extra space/better location etc.
You'd definitely have to factor in likely price movement in the area you want to buy.
Could you get a buy-to-let with a view to living in it in future? That way you can save up towards paying the loan off quicky and avoid problems with price rises.
We had the option to do that but house prices in London meant that it was better to buy as soon as we can. We bought our first property a couple of years ago and we would have been priced out if we'd waited any longer. Also a mortgage meant we could afford a more expensive property, the type of place we could have bought outright would have been much further from the centre and in worse condition.
We are overpaying significantly with our annual bonuses so that will keep the amount of interest down, I expect we'll clear the mortgage in 15 years or less.
I'd recommend saving as much as you can so that you can get a reasonable deposit, as that will give you the best mortgage rate, we had a 40% deposit which meant we could get one of the best rates on the market.
I also wouldn't have wanted to wait much longer as I feel more secure to be settled in my own home, it's nice to be able to think about long-term changes you can make to the property, and if you want to start a family then it would be better to be in your own home and it might not be best for your fertility to put that off for six years (depending on your age).
Of course, in some parts of the country house prices aren't increasing so rapidly and it could be a better option for you to save up and buy outright. A lot will depend on the local housing market.
Wow, thanks for all your responses. I wasn't sure anyone would answer so I kept the OP vague! Seeing as you're all being so helpful I should give you more information. Probably should have done in the first place - sorry!
We are not in the UK, so obviously the market and interest rates etc are different.
We have seen a slightly bigger house on the same street we live in. It costs the equivalent of 180,000 pounds. If we paid a deposit of 30,000 our monthly repayments would be about 1300. We currently pay 660 a month. Interest rates are 8.63% at the moment. Our monthly income is around 5000.
The difference in rent and mortgage are, I believe, because our landlord does not have a mortgage as the house was paid off some time ago. Whereas we would be buying the other house at current market value.
So, with a short term mortgage, the final repayment is lower? Sorry, very ignorant on this topic!
Never mind that last question - just answered that for myself on a mortgage calculator!
Mortgages cost interest while you still owe money on them. The quicker you pay it off, the quicker you dont pay any interest. It's just like any other debt. So you can take out a 25 year deal, but if you pay it off in ten years, you only pay ten years interest.
Given we have no clue where you live, only you know if there is a likelihood that prices will go up a lot while you are saving up.
Let's say you borrow £150k for five years. You will pay interest of £65k over five years.
If you dont buy, but instead save up over five years, you will pay £40k in rent over those same five years.
So the mortgage costs you £25k more than rent over those five years.
If the house goes up by £25k in those same five years (which is about 3% a year) then you make your money back, if you own it.
If the house goes up by £25k in those same five years and you don't own it, you have to pay more- £175k now, not £150k.
If there is a risk that you don't manage to save the full £175k in five years, then you have to worry about how much property could go up over the next five years instead.
I would say save and buy in a couple of years time
Mumsnet is a UK site and posters are used the house prices and rents almost always increasing
In other countries this isnt the case. In Japan, prices havent increased for 25 years, in the US prices have gone down slightly over the past 5 years, in Spain and Ireland prices have decreased by 30%
Also, in some countries you have to pay very expensive fees to even take out a mortgage
Buy with cash in a few years time. It's a great feeling not to be a slave to debt and the banks! (As I know from experience)
Or actually, as your rent is so low, why buy at all? Keep saving and enjoy life!
Thanks mijas! I know, we change our minds all the time about whether to buy or not. Lots of people here have dogs that bark a lot and I'm terrified of being stuck somewhere with noisy neighbours! I think it's just that feeling of "money you'll never see again" as oppose to one day having paid off a mortgage.
DH and I live outside the UK. When we had some capital to invest, we bought a flat outright in the UK, and rent it out. The money barring any repairs etc, is invested, so we have a nice pot building up plus the value of the property increasing.
We didn't want to buy where we live. We don't know the market, or the properties, we are not 100% sure well be here forever. Best of all renting allows us to live in a far nicer part of town in a lovely place, we could never afford to buy what we can rent here. And where we live , tenants are well protected and renting is the norm for most, including families.
That is my case as well. I pay 800 euros per month rent for something that would cost 700,000 euros (and about 4k per month mortgage payments) to buy - here in Northern Spain
Only idiots or the very rich would buy in such circumstances
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